They know every word. Boys, bare-chested and sweating in the April heat. Girls clutching digital cameras, their faces streaked with paste to protect them from the sun. They answer the call-and-response lines with increasing excitement. By the time Thxa Soe reaches the chorus, the crowd have taken over. With fists pumping the air, they roar his words back at him.

This is a summer music festival, soaked in alcohol and drenched in sweat, the same as anywhere. But this is Burma, and nothing is the same here.

The barricades keeping the audience from the stage are ordinarily used to control rioters. They are ringed with razor wire. At the very front of the crowd, two novice monks, wrapped in the maroon robes that have come to symbolise defiance in Burma, dance and play air guitar. And everywhere, the Tatmadaw – Burmese military officers – armed and helmeted, watch over all.

Everything is watched in Burma, everything is scrutinised, and everything is controlled. Books cannot be published without government approval, song lyrics are vetted by a censorship board for anti-government sentiment before they can be recorded. Anything even vaguely critical of the ruling military junta is swiftly outlawed, any attempt to circumvent the regime brutally repressed.

But an imported art form – hip-hop – is providing a subterranean vehicle for quiet, yet significant, dissent among Burmese youth.

Burma has a history of revolutionary music. Traditional protest songs, known as thangyat, were once used to air grievances, both small, against neighbours, and large, against authority. Following the 1988 student uprising, however, the music was banned outright by the ruling military junta.

But hip-hop's fluid lyrics wrapped in rhymes and youthful argot make it a perfect modern format for subtly spreading an anti-authoritarian message.

Thxa Soe is one of Burma's leading hip-hop stars, and one of its most outspoken. He first heard hip-hop as a student at the SAE Institute in London, instantly admiring the quicksilver rhymes and daring lyrics of Dr Dre and Snoop Dogg.

But he also had an interest in the traditional music of his homeland, and began researching the hundreds of documents held in the UK. "In the British Library, I discovered these traditional songs, [with] original Burmese-language lyrics, that nobody had performed for hundreds of years. They were taken from Burma in the 1780s. Many songs that people had never heard."

He began combining the two art forms, meshing the ancient melodies with computer-generated beats, and near-forgotten Burmese-language words with his own modern lyrics.

"I like, and people like, the freedom of hip-hop. There is not much freedom in rock, but in hip-hop you have freedom to express, express your ideas. And this is our hip-hop, for Burmese.

"I have too many words, not only me, too many teenagers have too much to say. Because our country is a very closed country, and the older people have a closed mind, a concentrated mind."

The Burmese people have been promised elections this year, the first in two decades. No one at this concert has ever cast a ballot. But even before a date has been set, the poll has been written off by the international community as a sham. The main opposition party, the National League for Democracy, which won 80% of seats in the last election in 1990 but was never allowed to take office, will not contest it.

It opposes new election rules laid down by the junta which forbid the participation of its leader, the Nobel peace prize winner Aung San Suu Kyi, because she is serving a prison term. Aung San Suu Kyi has spent 15 of the past 21 years under house arrest, put there by the same military generals now legislating to keep her from taking part.

There will be no campaign in Burma this year, no discussion of policies, opposition and government, and no international oversight to ensure the polls are "free and fair".

More than 2,000 political prisoners remain in Burmese jails, and rebel armies in several eastern provinces, including in this state, the Shan, run a fierce resistance against the military's brutal rule.

"The election will not bring democracy," the Guardian hears more than once in Taunggyi. But through music, there is opportunity for expression.

Meeting foreign journalists is dangerous, so Thxa Soe speaks to the Guardian several days after the concert at a house 500km south, in Burma's capital, Rangoon.

The 29-year-old flew under the junta's radar with his first album, but he is now a victim of its success. Its popularity has meant he is closely watched by the government censors.

Outright criticism of the government is forbidden, but he skates close to the edge of what is acceptable in the junta's eyes, and his songs are regularly banned.

On a recent album, fully three-quarters of the tracks were forbidden, fearful of reprisals from the junta, fled Burma.

"[I said to him:] 'Hey man, you can't be paranoid, but you don't want to face [this] kind of problems, you need to get out from this country.' So he decided he want to get out, so I helped him go to America."

But even the seemingly anodyne can land musicians in trouble in Burma. One of Thxa's songs recently banned had as its only lyrics: "Hey hey, how are you?"

Famously paranoid, tThe Burmese government is undoubtedly aware its young people are pushing the boundaries of what it will tolerate.

The regime's mouthpiece, state-run newspaper, the New Light of Myanmar, regularly rails against foreign art forms and entertainment.

Police regularly seize from street vendors bootleg copies of albums and live performances they have banned, but, cheap and quick to reproduce, they are never off the streets long.

Thxa Soe says he has chosen to stay in Burma, despite the risks, because he sees his voice as important in his homeland. "It is very difficult being a musician in Myanmar. You are not free. You are always being watched, for what you say, and you are being told what you can say and what you cannot. [But] I believe music can change a country, not only our country, but the whole world."

And there are others in Burma finding an outlet for dissent in music. A group known as Generation Wave, its exact membership unknown, secretly records and distributes anti-government albums across the country, dropping them at the tea shops that are the social hubs for Burma's underground political network.

They write songs such as Wake Up, a call for young people to join the pro-democracy movement, and Khwin Pyu Dot May (Please Excuse Me), the story of a young man asking his mother's permission to join the struggle.

Most of its members keep their identities a secret, after high-profile member Zayar Thaw was jailed for six years for forming an illegal organisation.

But the threat of prison has not stopped Burma's young flocking to the group, as fans and as members.

"We welcome young people to participate in our movement against the regime," a performer known only as YG says. "Our songs honour mothers and revolutionists. We want young people to be active and interested in politics. Every youngster can be an activist."

As the grinning teenagers leave the Taunggyi concert, steam rising from their sweat-soaked bodies in the now cool midnight mountain air, a young man yells out to the Guardian Thxa Soe's banned song lyric: "Hey, hey, how are you?"

Innocent enough, but in Burma, everything has meaning.

Censored by the state

Thxa Soe's record with Burma's notorious censorship board, run by the ruling military junta, is patchy. On his most recent album, nine of 12 songs were banned.

One song titled Hey, We Have No Money was allowed but another, Water, Electricity, Please Come Back, an obvious comment on Rangoon's inconsistent power supply, was forbidden.

The titles of Thxa Soe's albums – Blend Of Music, Mix Or Don't Mix If You Want To – reflect his musical style, which combines traditional Burmese songs and lyrics with hip hop-style beats and words.

He has been criticised by the censorship board for "ruining" traditional Myanmar music, and the Myanmar Theatre Association has forbidden musicians in traditional orchestras from using their instruments to play contemporary music.